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‘We must step up regulations for technology-driven process’

By Chijioke Nelson
06 November 2018   |   4:10 am
There are three issues here- the global risk; Sub Saharan Africa’s debt; and stock market performance in Nigeria. In terms of global risk, the major ones increase...


Mary Uduk is the Acting Director-General of Nigeria’s Securities and Exchange Commission (SEC). The unassuming professional, whose concern is about repositioning the capital market as a resort for investment financing for the private and public sectors, told the Assistant Editor, Finance/Economy, CHIJIOKE NELSON, that it was time to step up regulations in line with global trends.

What challenges do you see around the nations capital market?
There are three issues here- the global risk; Sub Saharan Africa’s debt; and stock market performance in Nigeria. In terms of global risk, the major ones increase in interest rate in advanced countries, especially in the United States. The development is serving as a safe haven for investors, judging by their stability. We understand that if interest rate is increased in a developed country like US, it’s a signal to foreign investors to exit from emerging and frontier markets or at least, reduce their exposures to such markets. There is also a case of the dynamics in global oil price and equity valuation in the U.S., trade war between against China, as well as Brexit issues.

Secondly, for such economies with foreign debts, it also indicates increase in the cost of their debt service. At the same time, the monetary authorities in such markets will find it difficult to unilaterally adjust downward their interest rate. So it’s like their hands are tied. Equally the high equity valuation in the US also makes participants to prefer such markets although one hopes that it does not suffer a major correction which in turn will likely affect the global financial stability.

A big question will be how all this affects us as a country especially given that we are a commodity dependent economy with developments in the global oil prices dictating the performance of our economy in terms of output growth, foreign exchange and government revenue. Currently also, we can see the impact of increase in interest rates of advanced economy leading to capital outflows and reduced performance of our stock market. It is also one of the factors that is making it relatively difficult for our central bank to lower interest rate which has implications for private sector borrowing and growth.

Increase in borrowing by sub-Saharan African countries is another issue. Debt generally is not a bad thing if it is properly used, especially on well-costed projects. However, it can get to a point where debt is very high, especially when the cost of servicing it becomes burdensome. You don’t want to find yourself in a debt trap. If interest rate is getting higher in advanced countries, it means that the rate of repayment is higher. Especially in economy that is commodity dependent, it can bring instability and export prices can change anytime.

Stock market performance is another issue of concern, especially in Nigeria, as the market has not been doing very well lately. A major contributory factor is the outflow of foreign investment as earlier mentioned, which has led to sell pressure accumulating into depressed prices. Other factors identified is the upcoming election, which might have made some investors to hold back their investments and sell or adopt a wait and see strategy until after the elections.

What would be your recommendations on issues of interest rate, debt and market’s governance?
First, we need to consider the impact of borrowing activity on private sector. When government borrows, interest rate goes up and the private sector cannot borrow. Another thing is for governments of sub Saharan Africa to see how they can ramp up their revenue.

You can do this by looking at the kind of partnerships you can go into. Another solution is the sustainability of domestic and foreign debt. Also, government can check if there are projects that can be finished by the private sector. Government needs to pay attention to exchange rate risk, debt service payment and see the kind of collaboration that can be done among others.

As regulators, we understand the importance of foreign investors for market efficiency, liquidity and transparency. However it’s also important for us to develop local investors by building their confidence and encouraging their participation.

We have made a lot of progress in that direction, like the risk-based supervision, zero tolerance to infractions in the market and complaint management framework, among others. If you don’t tolerate infractions, investors will know that somebody is watching their back. We have other initiatives like e-dividend and Direct Cash Settlement, which are all geared towards encouraging investors in the Nigerian capital market. We are also looking at how to deepen the market, through the introduction of different products like derivatives, non interest capital market products and commodities. We are finalising our rules on derivatives and also have a standing committee to develop a vibrant commodity ecosystem.

We also try to embrace technology innovation. Interestingly, that also is a major theme of this IMF/World Bank meetings. In terms of what we have done, we are working on automating a number of our operations and encouraging those we regulate to embrace technology and have minimum technological standards, especially innovators- FinTech.

We now have a newly formed Division on FinTech in the commission, as well as a Market Wide FinTech Committee, which expectedly, will come up with a FinTech Roadmap for the Nigerian capital market. We also encourage the FinTech Association of Nigeria, some of them working on capital market-related issues and projects to collaborate with SEC so that we can work together to build a capital market that is technology savvy.

What is the take away for the SEC from this meeting?
We have gained a lot of knowledge from this meeting, but a major take away has been the technology-related discussions. The world is moving towards digital processes and as regulators, we have to be ready to step up our regulations in that regard. But I know that The issues in focus are what the FinTech Association of Nigeria is already working on. We are willing to collaborate with them so that SEC and the market are not left behind. Recently, we invited them to the commission’s headquarters for a presentation on what it is all about, particularly the areas that affect the commission like RegTech, Blockchain and Initial Coin Offerings, which are the things we are already working on. This goes to re-emphasise that technology is the future and we have to move with the trend as regulators. It will also help our work and make the market better.

What has been responsible for the persistent decline in market activities?
If you look at the global market report that was released here in Bali, and what we already know about increase in interest rates in advanced countries, you will surely agree with me that it is normal thing, because a lot of investors move their investments from both Emerging and Frontier Markets, which Nigeria is one, to take advantage of those increases in advanced countries.

We want to believe that it is one of the things causing the downward trend in the market this period. Another probable reason could be the upcoming general elections. As an investor, a lot of them would want to reduce their exposure or totally move it out. Some may also adopt a wait and see attitude on what will be the outcome of the elections to keep their investments safe.

They are waiting to see what will happen and after the election, they can then decide to come full throttle. Such things happen at times like this, so I do not really see any problem in that direction. Our stock market is very strong and the fundamentals are very strong too. It’s just a temporary thing and we believe that after the elections the market will pick up.

What is the update on e-dividend enrollment and the observed slow pace?
As at the last CMC meeting in August, 2.55m investors have registered. We will get an update on that figure during the next CMC in November. The enrollment is normal for now. We have not received any complaint from investors on why the process is not as fast as it should. I want to believe that those that are yet come may probably not have heard about it and that is why we are pushing on with the enlightenment programmes. We are working to improve the awareness and I am expecting that more people will be enrolled on the platform.

What about the MTN Nigeria’s prolonged listing plan?
We are still expecting that MTN will come to the market, but what we cannot say is when they will come. We also have a New Listings Committee of the CMC, which responsibility includes fashioning out ways for these multinationals and other companies already not listed to see reasons in doing so. The committee is meeting with some of these companies and we hope that very soon, they will have breakthroughs.